Section 1102 (d)(3)(a) of the Internal Revenue Service (IRS) Restructuring and Reform Act of 1998 (RRA 98) requires the Treasury Inspector General for Tax Administration to conduct periodic audits of a statistically valid sample of the total number of determinations made by the IRS to deny written requests to disclose information to taxpayers on the basis of Internal Revenue Code (I.R.C.) § 6103 (1999) or the Freedom of Information Act (FOIA) (1988) exemption (b)(7).

This is our second review under this RRA 98 provision. We took a broad approach in our Fiscal Year (FY) 1999 review by reviewing three separate statistical samples of denied FOIA requests, denied Privacy Act (PA) of 1974 requests, and imperfect requests closed during the period July 22 through December 31, 1998. In our FY 2000 review, we narrowed our approach by reviewing two separate statistical samples of: 1) FOIA and PA requests that were denied based on I.R.C. § 6103 or FOIA exemption (b)(7) or where the IRS replied that responsive records were not available, and 2) closed I.R.C. § 6103 (c) and (e) requests where information was denied or requesters were told that records were not available. We selected our samples from requests for information that were closed during the period January 1 through September 30, 1999.

The overall objective of this review was to determine if the IRS improperly withheld information requested by taxpayers in writing, based on I.R.C. § 6103 and/or FOIA exemption (b)(7), or by replying that responsive records did not exist. To accomplish this objective, we determined whether:

• The IRS properly adhered to statutory requirements contained in the FOIA and PA, as well as internal procedural requirements.
• Disclosure offices adhered to statutory requirements when denying written requests received from taxpayers under I.R.C. § 6103 (as opposed to the FOIA or the PA).

Disclosure offices could improve efforts to provide FOIA, PA, and I.R.C. § 6103 requesters with all the information they are entitled to when responding to their written requests. Further, disclosure offices can improve the timeliness of responses to FOIA and PA requests. Based upon our statistical samples, we determined that disclosure offices:

• Improperly withheld information from requesters in 8.8 percent of the denied, partially denied, and no responsive record FOIA and PA requests and 6.3 percent of the I.R.C. § 6103 requests where information was denied or requesters were told that records could not be located.
• Did not respond timely to FOIA and PA requesters in 33.8 percent of the cases in our sample where information was denied or responsive records were not available.

Taxpayers’ rights were potentially violated in cases where the IRS improperly withheld information requesters were entitled to receive under the FOIA and when requests were not responded to within the timeframes required by law. As a result, the IRS is at risk of incurring unnecessary costs associated with administrative appeals and civil litigation.

While we cannot compare these results with the prior review because of the different samples selected, we did notice a significant decrease in the number of cases where information releasable under RRA 98 § 6019(c) was improperly withheld. Under this provision, the IRS must provide authorized representatives with the names of individuals who, along with the requester, are assessed the same Trust Fund Recovery Penalty. In the prior review, we identified 13 such improper withholdings. In this review, we identified only 2 such cases. Disclosure management responded that the majority of the errors in the prior review occurred before employees were trained on this law change.

The IRS improperly withheld information that requesters were entitled to receive in response to their written inquiries under the FOIA, PA, and I.R.C. § 6103. Table 1 shows the results of our review of two statistical samples. These samples were based on a 90 percent confidence level and include cases closed during the period January 1 through September 30, 1999.

(Note: in one of the FOIA/PA error cases in the chart, disclosure management disagreed with our conclusion that an improper withholding occurred because although the requested transcript was not provided, the response addressed the requester’s specific question and provided additional customer service.)

Information requested by taxpayers in FOIA and PA requests processed under the FOIA was improperly withheld because the IRS did not correctly apply the FOIA when denying requests for information or did not always follow the Internal Revenue Manual. Information requested by taxpayers under I.R.C. § 6103 was improperly withheld primarily because the IRS did not fully respond to taxpayers’ requests, even though the information was readily available.

We also identified three I.R.C. § 6103 cases where it did not appear that the local disclosure office provided all requested information in response to requests to disclose information to designees of the taxpayers. Disclosure management informed us that local disclosure offices make verbal agreements with federal and state government offices to provide only specific information (e.g., fact of filing) in response to these requests, even if the authorization signed by the taxpayer allows the release of more detailed information. These verbal agreements were not documented; therefore, we could not determine whether the IRS improperly withheld information in response to the requests.

The IRS did not always respond to FOIA and PA requesters within the time frames allowed by law. Responses should be provided within 20 days for FOIA requests and 30 days for PA requests (both time frames exclude Saturdays, Sundays, and legal public holidays) after the request is received by the responsible disclosure office. We determined that in 107 of the 317 (33.8 percent) cases in our sample, responses were not sent to requesters timely. However, as shown in Table 2, slightly more than half of the cases were less than or equal to 30 workdays late.

Several factors contributed to the delays in responding to requests. Our review of 107 untimely cases showed that: 1) disclosure personnel were waiting for the requested documents from functional areas, and 2) case files did not always contain any indication of supervisory review. Ongoing supervisory review would better ensure that responses to FOIA and PA requesters are timely.

Because the IRS did not respond to our FY 1999 report before the draft of this report was issued, we are repeating recommendations made in our FY 1999 report regarding the IRS meeting the legal and procedural guidelines for responding to written requests for information under the FOIA. With regard to our findings related to I.R.C. § 6103 requests, we recommend that the Office of Governmental Liaison and Disclosure ensure that personnel responding to I.R.C. § 6103 requests are adequately trained in the use of Integrated Data Retrieval System research tools; verbal agreements are documented between local disclosure offices and other government agencies regarding the scope of information requested; and management reviews of completed work are performed.

Management’s Response: Management’s response to our FY 2000 report was due on September 21, 2000. As of September 26, 2000, management had not responded to the draft report.